Tag Archives: economic crisis

Discrepancies in Public Opinion

Only 6% of Russians think that the government is doing a good job in dealing with economic crisis, according to a recent poll of the Russian public conducted by the Levada Center.  Russians also think that its own government is mostly responsible for poor economic conditions.  However, while 36% of the public blame the government for Russia’s economic woes, only 17% think Prime Minister Putin is responsible.  The 20% gap may not seem that problematic, except for the fact that Prime Minister is actually the head of the government. Interesting indeed…

What do Lebanon, Algeria, and the Philippines have in common?

CG TrendsThey’re all making strides in corporate governance. In the recent issue of Corporate Governance Trends, a quarterly CIPE publication, you’ll read about new tools for family-owned businesses in Lebanon to implement corporate governance, a private sector-driven initiative to create the Corporate Governance Code in Algeria, and a successful program in the Philippines using scorecards to rank companies’ corporate governance performance. Even in these uncertain times, CIPE partners continue to move forward in their efforts to create better business environments and promote good governance. With the global downturn on everyone’s mind, we’ve also included an interview with CIPE Executive Director John D. Sullivan about the importance of good governance as a response to the economic crisis. The publication is available in Arabic, French, and English.

Comply or else…

The Russian authorities, yet again, are taking decisive steps to deal with the economic crisis.  This time, they are threatening a foreign investor with expropriation of property (without due compensation by simply revoking licenses) if production does not increase to satisfactory levels.

As Foreign Policy notes, this is not a one-off incident.  Foreign investors in labor intensive industries may be coming under the same pressure that local companies are already facing – pressure to keep up production levels, despite an economic downturn, to avoid social distress connected with job losses (see the story of Pikalevo).

Some time ago, a paper by Bruce Bueno de Mesquita and George Downs detailed very well how modern authoritarian leaders remain in power by reaping the benefits of economic growth (driven by things like demand for resources) and using those benefits as a trade off between political freedoms and social stability.  Russia’s story may be giving some more credibility to their arguments.

The Private Sector: A Problem or A Solution?

In times of crisis everyone is quick to place blame on someone else. Maybe, when you can say that its somebody else’s problem, it just makes us feel better about ourselves. Maybe, it relieves you of the duty to fix the problem – “I didn’t break it, so why should I fix it?”

The blame game is becoming quite popular, as many leaders are pointing fingers at someone else for their own economic problems. Of course, we’ve seen Lula blame casino capitalism for his country’s troubles and Chavez blame everyone and everything for the economic downturn the world is facing, instead declaring socialism is proving to be the working model of development.  The Russian government has been quite vocal in stressing the implications of the international crisis and its impact on the country’s development path. 

The blame game is also evident within countries, where governments place blame on the private sector, companies blame governments, and citizens are frustrated with both.  In private conversations, I often hear about the private sector’s fault behind today’s economic downturn and, occasionally, about the destined collapse of capitalism.  But is the private sector really the culprit here? Is market economy? What does the blame game accomplish?

We often deal with misconceptions about the private sector in our work around the world.  Just start talking about corruption in any developing country and you will often hear that “its the private sector’s fault.”  The point worth mentioning when such opinions surface is that the private sector – or the business community for that matter – is not a monolith.  There are many different types of firms – from large national enterprises, businesses run by government cronies, and state-owned behemoths to small and medium-sized companies and informal sector entrepreneurs.  They all have different interests, influence positions, relations with the government, etc.

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As Oil Slips So Does Moscow’s Credit Rating

While Russian government continues to react to the international financial crisis by throwing billions of dollars into the banking system the news that most developed economies are entering a recession has sent the price of crude tumbling to prices last seen in 2004.  This is terrible news for a country that relies on oil for over 60% of its export revenue.  Additioanlly, Vnesheconombank, the state operated development bank that is in charge of the government’s $200 billion financial stimulus package (15% of Russian GDP), is now asking for $34 billion from the state to fortify it’s own books.

Loaded with ambitious social programs, the 2009 budget forecasted a price of $65 per barrel – which is well about the current trading level of $43.  While the Russian government has publicised the fact that it has paid down the majority of its sovereign debt, the Russian private sector has been borrowing at a fast pace.  All of this news combined with the opaque nature of the Russian response to the economic crisis has led the S&P to issue the downgrade.  In an article from the Moscow Times Anton Tabakh, a fixed-income analyst at Troika Dialog states:

“It is like a notification to the Russian Finance Ministry, the Central Bank and the government that even if there is no risk of outright default by the federal government, the rating agencies are watching and that their respect for Russian economic management has fallen after recent events.”